New Zealand dollar shrugs as inflation expectations remain near 2%

The New Zealand dollar is showing limited movement on Monday. In the European session, NZD/USD is trading at 0.5967, up 0.07% on the day. The New Zealand dollar was trounced on Friday, falling 1%.

New Zealand inflation expectations inched higher to 2.1% in the fourth quarter, up from 2.0% in Q3. Expectations for one-year ahead annual inflation declined to 2.05% from 2.40%. The Reserve Bank of New Zealand keeps a careful eye on inflation expectations are they can translate into real inflation. Inflation has been on a downtrend and fell to 2.2% in the third quarter, the first time in over three years that inflation is back in the target band of 1% to 3%.

The RBNZ has been aggressive in its easing cycle in response to falling inflation. The central bank slashed the cash rate by 50 basis points to 4.75% last week and is expected to reduce rates by another 50 bp at the final meeting of the year on Nov. 27. The RBNZ is likely to continue trimming rates in 2025, with the pace and size of rate cuts largely dependent on inflation, employment and GDP.

China’s consumer prices rose 0.3% y/y in October, below the 0.4% gain in September and the lowest since June. This missed the market estimate of 0.4%. The monthly reading pointed to deflation, coming in at -0.3%, compared to 0% in September and lower than the -0.1% market estimate. China’s central bank announced in September aggressive stimulus to boost the sluggish economy and encourage more consumption, but the measures will take time to filter through the economy.

• NZD/USD has pushed above resistance at 0.5987 and is testing resistance at 0.6002
• There is support at 0.5957 and 0.5942